The federal estate tax is a tax on the transfer of a person's assets at death, but it hits only a tiny fraction of estates. A large lifetime exemption shields most people entirely, and married couples can shield roughly twice as much. Understanding how the exemption, the marital deduction, and portability fit together explains why so few families ever owe this tax.
How the exemption works
Each person has a unified lifetime exemption that covers both large gifts made during life and the estate left at death. Starting in 2026, the federal estate and gift tax exemption is 15 million dollars per person, indexed for inflation, under the tax law enacted in 2025. Only the value of your estate above that threshold is taxed, and the top federal rate is 40 percent. Because the exemption is so high, the vast majority of estates owe no federal estate tax at all.
The unlimited marital deduction
Property left to a spouse who is a U.S. citizen passes completely free of federal estate tax, no matter the amount, under the unlimited marital deduction. This lets a married person leave everything to their spouse with no immediate tax. The trade-off is that the assets are then in the survivor's estate, so tax may apply when the second spouse dies. Non-citizen spouses do not get the same automatic deduction and often need a special trust called a QDOT.
Portability between spouses
When one spouse dies without using all of their exemption, the survivor can claim the unused portion, the deceased spousal unused exclusion, through a feature called portability. This effectively lets a married couple combine their exemptions, shielding roughly 30 million dollars in 2026. Portability is not automatic: the estate must file a federal estate tax return (Form 706) to elect it, even when no tax is due. Missing that filing can waste millions in exemption.
State estate and inheritance taxes
The federal tax is only part of the picture, because about a dozen states plus the District of Columbia levy their own estate tax, often with far lower exemptions. States such as Oregon and Massachusetts start taxing estates at thresholds as low as 1 to 2 million dollars. A handful of other states impose an inheritance tax paid by the people who inherit. Where you live, and where you own property, can matter as much as the federal rules.
A widow inherits everything from her husband under the marital deduction, and his estate files Form 706 to port his unused 15-million-dollar exemption to her. When she later dies with a 22-million-dollar estate, her combined exemption of roughly 30 million dollars covers it, so no federal estate tax is due. Had the estate skipped the portability election, millions could have been taxed at 40 percent.
Key takeaways
- Starting in 2026 the federal estate and gift exemption is 15 million dollars per person, indexed for inflation.
- Only value above the exemption is taxed, at a top federal rate of 40 percent.
- The unlimited marital deduction lets you leave any amount to a citizen spouse tax-free.
- Portability lets a couple combine exemptions, but only if the estate files Form 706 to elect it.
Common mistakes
- Assuming the estate tax hits ordinary families; most estates fall far below the exemption.
- Failing to file Form 706 to elect portability, wasting a deceased spouse's exemption.
- Ignoring state estate or inheritance taxes with much lower thresholds than the federal one.
FAQ
Do most people owe federal estate tax?
No. With a multimillion-dollar per-person exemption, only a very small share of estates owe any federal estate tax.
What is portability?
It lets a surviving spouse use the deceased spouse's unused exemption, but the estate must file a federal estate tax return to elect it.